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Analysts: Simon unlikely to buy Capital Shopping

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Simon Property Group Inc. is unlikely to buy Capital Shopping Centres Group Plc because it will take too long for rents to rise enough to justify a price its U.K. counterpart would accept, according to Barclays Capital real estate analysts.

“The economics of an acquisition appear difficult to justify at levels that could get CSCG shareholders interested,” analysts Ross Smotrich and Aaron Guy said in a note to clients Tuesday.

Indianapolis-based Simon, the largest U.S. mall owner, made a conditional offer of 425 a pence share for Capital Shopping on Dec. 15, valuing the U.K. company at 2.9 billion pounds, or $4.6 billion. Simon attached several conditions to its proposal, including that Capital Shopping drop a planned cash-and-shares purchase of the Trafford Shopping Centre in Manchester that would give seller Peel Group a 25 percent stake in Capital Shopping.

“If the Trafford acquisition is completed, SPG would find itself at a material disadvantage to acquire CSCG in the medium term,” said Smotrich, who works in New York for the investment banking unit of Barclays Plc, and Guy, who is based in London. “Any future plan would become materially more expensive and complicated, leaving Simon with few options.”

Simon wants to acquire a portfolio of malls in the U.K. that couldn’t be replicated in a market where planning consents for new shopping centers are hard to obtain, the analysts said. Buying Capital Shopping also would give Simon’s tenants an opportunity to open stores outside the U.S., they said.

Another attraction of Capital Shopping for Simon, which already has a 5.1 percent stake in the company, is the potential for rent increases at its stores. Capital Shopping’s rents are 20 percent below the market average, according to the Barclays report.

“It will ultimately be challenging for SPG to underwrite a more aggressive firm bid given that much of the value will take years to realize,” the analysts said.

Simon’s tactics are “eerily similar” to its unsuccessful efforts to buy General Growth Properties Inc., Smotrich and Guy said. They include offering financing at better terms than a third party and making indicative offers through press releases.

Simon has until Jan. 12 to make a firm bid for Capital Shopping or abandon its pursuit, U.K. regulators said Dec. 17.

Capital Shopping, which delayed a shareholder vote on the Peel transaction to Jan. 26 from Monday, has refused to allow Simon access to its books, saying the offer “very substantially undervalues the company and its prospects.”

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  • Best use of cash stockpile
    How about spending a small portion of your cash on buying the Circle Center Mall next to your headquarters ?

    That would bail out the insolvent Capital Improvement Board (CIB) which is burdened with construction debt that has a ever extended balloon payment they will never be able to pay.

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  1. If I were a developer I would be looking at the Fountain Square and Fletcher Place neighborhoods instead of Broad Ripple. I would avoid the dysfunctional BRVA with all of their headaches. It's like deciding between a Blackberry or an iPhone 5s smartphone. BR is greatly in need of updates. It has become stale and outdated. Whereas Fountain Square, Fletcher Place and Mass Ave have become the "new" Broad Ripples. Every time I see people on the strip in BR on the weekend I want to ask them, "How is it you are not familiar with Fountain Square or Mass Ave? You have choices and you choose BR?" Long vacant storefronts like the old Scholar's Inn Bake House and ZA, both on prominent corners, hurt the village's image. Many business on the strip could use updated facades. Cigarette butt covered sidewalks and graffiti covered walls don't help either. The whole strip just looks like it needs to be power washed. I know there is more to the BRV than the 700-1100 blocks of Broad Ripple Ave, but that is what people see when they think of BR. It will always be a nice place live, but is quickly becoming a not-so-nice place to visit.

  2. I sure hope so and would gladly join a law suit against them. They flat out rob people and their little punk scam artist telephone losers actually enjoy it. I would love to run into one of them some day!!

  3. Biggest scam ever!! Took 307 out of my bank ac count. Never received a single call! They prey on new small business and flat out rob them! Do not sign up with these thieves. I filed a complaint with the ftc. I suggest doing the same ic they robbed you too.

  4. Woohoo! We're #200!!! Absolutely disgusting. Bring on the congestion. Indianapolis NEEDS it.

  5. So Westfield invested about $30M in developing Grand Park and attendance to date is good enough that local hotel can't meet the demand. Carmel invested $180M in the Palladium - which generates zero hotel demand for its casino acts. Which Mayor made the better decision?

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